LGIP Quarterly Newsletter |
|
|
|||||||||
| Market Summary |
Financial markets were influenced by two factors throughout the first quarter: the Federal Reserve’s tightening cycle; and the U.S. Treasury’s program to reduce debt.
At their February meeting, the FOMC raised both the fed funds rate and the discount rate 25 basis points to 5.75% and 5.25%, respectively. Using the new guidelines for disclosing their policy outlook, the Fed stated that the risks in the economy are weighted towards inflation with increases in demand outweighing the growth in potential supply.
At his February 17 Humphrey Hawkins testimony, Chairman Greenspan outlined the case for higher interest rates and stated that the urgency is greater now than earlier. He reiterated that imbalances between excess demand and supply, a precondition for an outbreak of inflation, remain too great and made a clear case that the Fed will continue to tighten until certain conditions take hold.
At their March meeting, citing that economic conditions and considerations were the same as in February, the FOMC raised both the fed funds rate and discount rate another 25 basis points, bringing the rates to 6.00% and 5.50%, respectively. Most market participants believe that the Fed will continue using this gradualist approach with more 25 basis point raises throughout the year.
The U.S. Treasury, which has been the other main influence on the markets so far this year, announced in January that a program of buybacks would be started in April 2000, as a result of record budget surpluses. During calendar year 2000 they will buy back $30 billion of high yielding securities. In addition, on February 2, the U.S. Treasury announced permanent reductions in bond issuance with 1-year bills issued quarterly, 5- and 10-year notes issued twice a year, and the 30-year bond issued once a year.
The actions of the Fed and the U.S. Treasury have caused an inversion in the yield curve which is expected to remain for some time. Short term rates have backed up considerably due to the hikes in the fed funds rate. Meanwhile, longer term rates have rallied as Treasury supply is reduced, as a result of the refunding changes and the buyback program.
Since our last update on January 21, the yield curve has inverted as rates in the 3-month to 5-year sector increased while the 10- and 30-year sectors decreased. Yields have risen 36 basis points in the 3-month sector while they have decreased 80 basis points in the 30-year sector, as shown in the Historical Yield Curve graph (see Figure 1, below).
Throughout this period, the Dow Jones Industrial Average has been very volatile, dropping as low as 9,796 on March 7, and rising as high as 11,287 on April 11. As of April 18, it is at 10,767.
The net return on the LGIP during the first quarter of 2000 ranged from 5.54% to 5.77%. The LGIP has maintained a defensive stance due to the continued threat of Fed tightenings and as a result, the LGIP is positioned to re-price quickly in response to a Fed move.
 |
| Summary of Advisory Committee Meeting |
he LGIP
Advisory Committee met on March 24, 2000, in the State Treasurer’s Office in Olympia.
A brief update on the net LGIP returns for December 1999 through February 2000 was given.
The targeted fed funds rate was again increased 25 bp, this time to 6%. The average net
return of the LGIP for January and February exceeded Donoghue by 52 bp, which is higher
than the average over the last seven years. This is due, in part, to the short average
life of the LGIP allowing it to reprice more quickly than the Donoghue funds in the event
of a tightening. The average life of the LGIP is short due to the threat of further Fed
action.
Treasurer Murphy announced the expiring appointments of advisory committee members Duane Leonard, Lynn Hills, Judy Menish and Dick Hughes. Duane Leonard and Lynn Hills were reappointed for three-year terms, which will expire April 30, 2003. Treasurer Murphy started a new tradition by presenting certificates of appreciation to advisory committee members whose appointments have expired and will no longer serve on the committee. Certificates of appreciation were presented to Judy Menish and Dick Hughes, who will be retiring and will no longer serve on the committee. The two new members are Doug Lasher, Clark County Treasurer, appointed by the Washington State Association of County Treasurers; and Shelley Pearson, Investment Officer at Kitsap County, appointed by the Washington Municipal Treasurers Association.
The timeline for the LGIP Web Client project was reviewed. Testing with OST should begin in May 2000, and testing involving the advisory committee volunteers will begin this summer. The features of the proposed LGIP Web Client were reviewed, and it was explained that the information on the LGIP Homepage is currently available to anyone.
A brief overview of the features of the LGIP Web-Client was given relating to accessing specific LGIP account information. This site will only be accessible by a password specific to the local government official. Committee members discussed the issue of public disclosure. The legal aspects of the public disclosure issue will be discussed with OST’s legal counsel and the findings will be presented at the next meeting in June
A brief update on the Statewide Custody search was given. The final contract and the letter of agreement were completed with the Bank of New York (BONY). A mailing was sent out to local governments notifying them that BONY was selected as the statewide custody provider. Four regional informational meetings were held in Seattle, Chehalis, Spokane, and Yakima. In addition, roundtable meetings will be held at the Washington Municipal Treasurers Association conference in April.
A brief update on the OST custody search was given. The RFI was sent out and the responses were due by March 20. Ten responses have been received. Collaborative sessions were held April 6 at OST. The RFP responses are due May 3 and selection of the OST custody provider should be announced by June 16. OST’s current custody contract expires September 30, 2000.
| LGIP Holiday Schedule for 2000 |
|
|||||||||||||||||||||||||
| WFOA 2000 - Public Finance Track |
September is right around the corner and so is the Washington Finance Officers Association (WFOA) conference in Ocean Shores. The class schedule is filling up with some excellent educational opportunities, including the pre-conference on Tuesday, September 12.
The Office of the State Treasurer is coordinating the Public Finance track and the following classes are scheduled:
To view the entire class listing, go to the WFOA web-site at: http://www.wfoa.org/conferen.htm. If you have questions regarding the Public Finance track, please contact Lisa Hennessy at 360-902-9013 or at lisa@tre.wa.gov.
| Update On Statewide Securities Custody Provider! |
During the week of March 13, the Office of the State Treasurer (OST) and the Bank of New York held informational meetings in Seattle, Chehalis, Yakima and Spokane regarding the Statewide Securities Custody Program. There was a great deal of interest shown at the seminars, with attendance at 67 for the four sessions. The model contract that was negotiated for statewide securities custody services between the OST and the Bank of New York is available on the OST web-site at: http://tre.wa.gov/Invest/invest.htm.
If you have any questions, please contact Douglas Extine at (360) 902-9012 or at doug@tre.wa.gov.
| LGIP Web-Client |
Progress is being made on the development of the LGIP Web-Client. Initially, this system will be an information-only, web-based system where LGIP participants can access account information, monthly statements, and historical data. Eventually, however, the Web-Client will provide transaction processing capabilities. Currently, there is a wealth of LGIP information available on the LGIP Homepage at http://tre.wa.gov/LGIP/lgip.htm
 |
 |
 |
 |
 |
 |
Washington State Local Government
Investment Pool
Position and Compliance Report
as of March 31, 2000
(Settlement Date Basis)
LGIP Portfolio Holdings
Cost Percentage
of PortfolioRepurchase Agreements $ 1,251,496,000 39.09% U.S. Treasury Securities 115,340,634 3.60% U.S. Agency Bullets 134,888,266 4.21% U.S. Agency Generic Floaters ------ 0.00% U.S. Agency Discount Notes 1,128,900,465 35.27% Certificates of Deposit 119,050,000 3.72% Banker’s Acceptances ------ 0.00% Commercial Paper 451,886,733 14.11% Reverse Repos ------ 0.00% *Total Excluding Security Lending $ 3,201,562,098 100.00% Security Lending Holdings
Cost Repurchase Agreements $ ------ Banker’ Acceptances ------ Commercial Paper 19,164,981 Total Excluding Securities Lending $ 19,164,981 Total Investments &
Certificates of deposit$ 3,220,727,079 Policy Limitations
The policy limitations include investment of cash collateral by a securities lending agent calculated as percentages of the portfolio holdings Total Excluding Security Lending.*
Size Limitations Holdings Percentage
of PortfolioPolicy Limitations
PercentageCertificates of Deposit $ 119,050,000 3.72% 10% Banker’s Acceptances (BA) ------ 0.00% 20% Commercial Paper (CP) 471,051,714 14.71% 25% Securities With Higher Volatility ------ 0.00% 10% Repos Beyond 30 days 400,000,000 12.49% 30% Aggregate BA & CP Holdings $ 471,051,714 14.71% 35%
Leverage (30% total Limit)Securities on Loan (dollars out on loan) $ 18,498,797 Reverse Repos ------ Total Leverage $ 18,498,797 0.58%
Maturity Limitations Currently Policy Limitations Portfolio Average Life 32 days 90 days Maximum Maturity 308 days 397 days Maximum Maturity of Repo 47 days 180 days Maximum Maturity or Reverse Repo 0 days 90 days Average Life of Reinvestment of Cash by Lending Agent 3 days 14 days
Repo Limits Per Dealer March 31, 2000 Total Repo
Percentage
(20% limit)Term Repo
Percentage
(10% limit)Projected
Redemptions
04/03/2000Projected
Position
04/03/2000Bank of America Securities LLC $ 386,496,000 12% 0% $ 386,496,000 ------ Bear Stearns & Co. 200,000,000 6% 6% ------ 200,000,000 CS First Boston ------ 0% 0% ------ ------ Chase Manhatten ------ 0% 0% ------ ------ Donaldson, Lufkin & Jenrette Securities 10,000,000 0% 0% 10,000,000 ------ HSBC Markets ------ 0% 0% ------ ------ Lehman Brothers Inc. ------ 0% 0% ------ ------ Merrill Lynch & Co., Inc. ------ 0% 0% ------ ------ Morgan Stanley ------ 0% 0% ------ ------ Paine Webber Inc. 200,000,000 6% 6% ------ 200,000,000 Prudential Securities 255,000,000 8% 6% 55,000,000 200,000,000 Salomon-Smith Barney 200,000,000 6% 6% ------ $ 200,000,000 State Street Bank ------ 0% 0% ------ ------ Total $ 1,251,496,000 $ 451,496,000 $ 800,000,000
Issuer Limitations
**Commercial Paper Cost Percentage
(5% limit)Rating
(A1/P1 or Better)Quincy Cap $ 59,575,100 1.9% A1+/P1 Charta Corp 59,421,800 1.9% A1/P1 Altair Fdg 44,566,350 1.4% A1+/P1 Triple One 24,856,917 0.8% A1/P1 Receivable Cap 49,716,667 1.6% A1+/P1 WCP Funding 59,542,533 1.9% A1/P1 Newport Funding 59,790,000 1.9% A1+/P1 Bavaria Univ FDG 54,686,255 1.7% A1/P1 Eureka Securities 39,731,111 1.2% A1+/P1 Giro Funding 19,164,981 0.6% A1+/P1 Total
$ 47,051,714 14.7% Banker’s Acceptances No Banker’s Acceptance holdings as of 03/31/2000.
** These are the limitations of the formal Investment policy. However, operating guidelines place limits of 3% per issuer.
Local Government Investment Pool STATEMENT OF NET ASSETS
March 31, 2000
Assets Investments, at amortized cost: Repurchase Agreements $ 1,251,496,000 U.S. Agency securities 1,263,788,731 U.S. Treasury securities 115,340,634 Commercial Paper 451,886,733 Total excluding Securities Lending &
Securities Purchased But Not Settled$ 3,082,512,098 Securities Lending Investments, at amortized cost: Commercial Paper 19,164,981 Total Securities Lending 19,164,981 Total Investments (Settlement Date Basis) $ 3,101,677,079 Due from Brokers - Securities Purchased But Not Settled,
at amortized cost:Commercial Paper 190,587,713 Total Due from Brokers $ 190,587,713 Total Investments (Trade Date Basis) 3,292,264,792 Certificates of Deposit 119,050,000 Cash 95,763 Interest receivable 9,763,402 Total Assets
$ 3,421,173,957 Liabilities Accrued expenses $ 242,726 Obligations under securities lending agreement 19,000,000 Due to Brokers 190,587,713 Total Liabilities
$ 209,830,439 Net Assets $ 3,211,343,518 Participant Net Asset Value, Price per Unit $ 1.00 Total Amortized Cost - Settlement Date Basis $ 3,220,727,079
| Total investment purchases: | $ | 26,620,168,610 | ||
| Total investment sales: | $ | 76,256,567 | ||
| Total investment maturities: | $ | 26,161,382,973 | ||
| Total net income: | $ | 42,045,322 | ||
| Net of realized gains and losses: | $ | 2,004 | ||
| Net Portfolio yield (360-day basis): | ||||
| January | 5.5359% | |||
| February | 5.6800% | |||
| March | 5.7658% | |||
| Average weighted days to maturity: | 32 days | |||
 |
Average Net Rate of Return of Government Only/Institutional Only Money Market Funds, Money Market Insight, iMoneyNet, Inc., Westborough, MA
NOTE: Rates are calculated on a 360-day basis.
The above comparison shows how the LGIP has performed relative to its benchmark since July 1994. This benchmark is the iMoneyNet, Inc., Government Only/Institutional Only Money Market Funds, which is comprised of privately managed money market funds similar in composition and investment guidelines to the LGIP.
The LGIP net rate of return has outperformed its benchmark since July 1994 by an average of 45.6 basis points. This translates into the LGIP earning $61.30 million over what the average comparable private money fund would have generated.
*Formerly IBC Financial Data
About OST |
Contact Us |
News |
LOCAL Program |
LGIP |
Debt Management
Investments | Revenue Distrib. | PDPC | Newsletters | Links
© 2000 [Updated: May 3, 2000] |
